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Just because a currency is digital doesn't mean it can't be taxed. And the Internal Revenue Service is looking for cryptocurrency buyers and sellers come tax time.
A federal court in California has ordered one virtual currency exchange, Coinbase, to hand over identifying records for almost 10,000 users who bought, sold, sent, or received more than $20,000 of digital currency through their accounts. And those users will likely need to pay taxes on those transactions. You can read the full order below:
While the Bitcoin business has been booming in recent years, the IRS had sneaking suspicion that digital currency traders were underreporting gains made from currency transactions. According to the order from the U.S. District court in Northern California:
Capital gain or loss for property transactions, including those from virtual currency, is reported on IRS Form 8949, which is attached to Schedule D of a Form 1040. Form 8949 includes a space where the taxpayer is asked to report the type of property sold. Based upon an IRS search, only 800 to 900 persons electronically filed a Form 8949 that included a property description that is "likely related to bitcoin" in each of the years 2013 through 2015.
The IRS then went searching for data on digital currency transactions from those years. An original summons issued to Coinbase asked for "records regarding nearly all of Coinbase's customers for a several-year period," but the government narrowed that request to those involved in transactions totaling more than $20,000 in a single year from 2013 to 2015.
So what, exactly, is Coinbase required to report to the IRS? The order demands the exchange produce the following info for the accounts targeted:
So if you used Coinbase and you weren't reporting those transactions on your taxes, you might want to file an amended tax return. Here's the full order:
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.